Issuer officials who said Treasury's final issue price rules are a vast improvement over earlier proposals nevertheless raised concern that they might discourage competitive sales of bonds or create problems for issuers if underwriters run afoul of the rules.

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DALLAS - The clock is ticking for municipalities and companies hoping to sell billion of dollars of Gulf Opportunity Zone bonds in Louisiana. But facing a tumultuous credit market, some will be challenged to close their deals by a late April deadline in order to avoid losing their allocations.

Sponsors of various GO Zone bond proposals have until April 22 to take to market $4 billion of GO Zone bonds approved by the Louisiana State Bond Commission and endorsed by the office of Gov. Bobby Jindal. If the bonds are not set for closing by that time, the approvals will be withdrawn and the allocations returned to the pool of capacity available for redistribution to other projects.

Congress established the Gulf Opportunity Zone bond program in 2006. It gave Louisiana the capacity to issue $7.9 billion of tax-exempt bonds to help rebuild the state's economy from the devastation caused by hurricanes Katrina and Rita in 2005. Mississippi was authorized to issue $4.8 billion of the GO Zone bonds, with another $2.1 billion for Alabama.

Proceeds from GO Zone bonds that have been sold to date have been used to build homes and apartments as well as fund various economic development initiatives, including a multibillion dollar oil refinery expansion. The new bonds were approved for 49 projects, including converting a building in downtown New Orleans into a Waldorf-Astoria Hotel, allowing Westlake Chemical Corp. to expand its operations in Ascension Parish, and building a mixed-use residential and retail development in East Baton Rouge Parish, and a coastal shipyard repair facility in Lafourche Parish.

Despite concerns about the market, the director of the State Bond Commission said a recent survey found that only three or four of the project sponsors indicated they would not be able to close their deals by the April deadline.

"The rest of them are indicating to us they will be able to close by then, and several have even given us the scheduled closing dates," said Whit Kling.

Project sponsors usually have 120 days after approval from the Bond Commission to close on the bonds, but in December it gave to sponsors of proposals whose approval would have expired in January an extra 30 days to sell their bonds. In January the commission gave an additional 60 days of grace to those projects and others set to expire in February.

"The extensions were requested primarily because applicants said they were having problems closing on their deals because of the turmoil in the credit market," Kling said. "Others said they were not seeking final approval on their projects at the October commission meeting, but the commissioners said it was now or never. So they got their approval and the letter of authorization from the governor's office, but they were not prepared to close so quickly."

Most of the debt will be issued as variable-rate bonds but not auction rate, Kling said.

If the bonds are not sold by the April deadline, and no further extensions are approved, the allocations will revert back to the pool dedicated to projects in southern Louisiana outside the environs of New Orleans.

"We have two pools of bond capacity," Kling said. "There is the dedicated pool for the parishes most affected by Katrina, which is Orleans and the surrounding parishes, and a competitive pool for the others. This deadline does not affect approvals from the dedicated pool, which will not expire until September."

Buck Landry, managing director in the New Orleans office of Morgan Keegan & Co., said the problem facing GO Zone bonds is a lack of buyers.

"We've had some of these issues with letters of credit that have closed, but it's hard to sell unrated paper in this market," Landry said. "Those trying to sell unrated paper in this market are going to have problems. Unless you have a letter of credit, it is going to take some patience."

He hesitated to speculate on how long the credit markets will be unsettled. "It's already been too long for me," Landry said. "We may be in the first quarter of a two-quarter recession."

All GO Zone bonds must be issued before Jan. 1, 2011.

As of March 1, Louisiana had received requests for $15.5 billion of GO Zone bonds from its $7.9 billion allotment. Mississippi had fielded applications for $10 billion and Alabama applications totaling $4.3 billion as of late 2007.

Louisiana sponsors had issued $2.4 billion of GO Zone bonds. The latest figures available indicate project sponsors have sold $800 million of GO Zone bonds in Alabama, with $833 million of GO Zone bonds issued in Mississippi.

Louisiana has only $800 million of remaining capacity after the State Bond Commission approved another $2.4 billion of GO Zone bonds in October. The SBC approved $1.7 billion in requests from the parishes in the competitive pool, or some $75.5 million more than was available. It also approved projects in the New Orleans area totaling $754.6 million from the $1.67 billion available.

State Treasurer John Kennedy, who also serves as head of the Bond Commission, said not all sponsors will be able to issue their allotted bonds before the April 22 deadline.

"I'm moderately concerned about the low level of sales, but some of these issues wouldn't be able to close even in a normal credit market," he said. "Others will ask for another extension, but there will be no automatic, blanket extensions. Extensions will only be given on an individual basis, and then only to those with very good reasons."

Martin Walke, vice president for economic development at the Louisiana Public Finance Authority, said the agency has issued $865.5 million of the $1.5 billion of GO Zone bonds that have been authorized by the authority and given final approval by the State Bond Commission.

"We have approximately $651.4 million of bonds pending but not sold," Walke said.

Turmoil in the credit market is having an effect on GO Zone bond sales, he said.

"The markets are so crazy right now that even good deals can't get done," Walke said. "I'm not personally aware of any of our GO Zone bonds that have closed in the last six months. Some have come close, but the professionals involved in these issues seem to be waiting for the market to settle."

Walke said the GO Zone bonds "are a great opportunity for economic development that Congress has provided for this state, and now we're caught in a perfect storm of a market that has moved."

The finance authority serves as a conduit issuer for many, but not all, GO Zone bond sales in Louisiana.

"If a company just has operations at one site in Louisiana, they typically go through a local issuer," Walke said. "Those with operations at several sites usually go through the LPFA because it is less complex to go through us rather than dealing with several issuers."

The state has benefited greatly from the GO Zone bond program so far, according to Walke said, and those benefits will continue for many more years. Louisiana's economy will be stronger than before the storms, he said, and better able to withstand severe blows in the future.

"This program is exactly what this state needed to recover from the devastation caused by two hurricanes," he said. "That is obvious from the fact that the program's capacity was over-subscribed from the very beginning. Billions of dollars of projects don't get done overnight. This activity will be going on for years."

The criteria used by the governor's office to grade the proposals for GO Zone bonds emphasized the positive economic benefits of the program, according to Walke.

"The grading system put a great deal of emphasis on the number of permanent jobs created by these projects, not just the construction jobs, and on well-paying jobs in particular," he said. "We'll be better able to withstand future storms because these bonds will help develop a stronger economy."

Kling said the GO Zone bond program has benefited the Louisiana economy, but all good things come to an end.

"It's been a great program, but I'll be glad to be out of the GO Zone bond business," he said. "We were given oversight of an extra $8 billion program and we have no extra personnel or additional resources."

"We'll have plenty to do even if the GO Zone program is over," Kling added. "We'll still be in the private-activity bond business. We have our normal allocation from the federal government of $360 million a year of private-activity bonds to help keep us busy."